U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
_X_ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended April 30, 1997
OR
___ Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________
Commission file Number 0-10593
CANDIE'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2481903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2975 Westchester Avenue, Purchase, New York 10577
(Address of principal executive offices)(Zip code)
(914)694-8600
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 16, 1997, 11,678,061 shares of Common Stock, par value $.001 per
share were outstanding.
<PAGE>
CANDIE'S, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE PERIOD ENDED April 30, 1997
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at April 30, 1997 3-4
(unaudited)and January 31, 1997
Condensed Consolidated Statements of Operations for the 5
Three Months Ended April 30, 1997 and 1996 (unaudited)
Condensed Consolidated Statement of Stockholders' Equity 6
for the Three Months Ended April 30, 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for 7-8
the Three Months Ended April 30, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements(unaudited) 9-10
ITEM 2
Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION 12
SIGNATURES 13
2
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
PART I.
ITEM 1. April 30, January 31,
1997 1997
-------------------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 196,685 $ 389,517
Accounts receivable, net 1,411,466 1,328,814
Inventories 5,873,437 5,251,091
Deferred taxes 928,000 1,300,000
Due from factor 2,964,970 --
Prepaid expenses and other current assets 1,159,504 769,781
-------------------------
Total current assets 12,534,062 9,039,203
-------------------------
Property and equipment-net of accumulated
depreciation of $764,031 and 727,413 343,936 377,145
-------------------------
Other assets:
Noncompetition agreements 324,756 334,698
Trademark 4,477,946 4,548,650
Other 402,074 409,649
-------------------------
Total other assets 5,204,776 5,292,997
-------------------------
Total assets $18,082,774 $14,709,345
=========================
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, January 31,
1997 1997
---------------------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable-trade $ 6,032,029 $ 4,673,462
Due to factor -- 580,515
Accrued expenses 1,066,917 739,457
---------------------------
Total current liabilities 7,098,946 5,993,434
Long-term liabilities 105,000 108,000
---------------------------
Total liabilities 7,203,946 6,101,434
---------------------------
Stockholders' equity:
Preferred stock, $.01 par value--shares authorized
5,000,000; none issued or outstanding
Common stock, $.001 par value--shares authorized
30,000,000; shares issued: 10,170,809 and
9,633,786 10,171 9,634
Additional paid-in capital 13,365,697 11,918,655
Deficit, since February 28, 1993,
(deficit eliminated $27,696,007) (2,497,040) (3,320,378)
---------------------------
Total stockholders' equity 10,878,828 8,607,911
---------------------------
Total liabilities and stockholders' equity $ 18,082,774 $ 14,709,345
===========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
Three Months Ended
April 30, April 30,
1997 1996
-------------------------
Net revenues $16,861,264 $ 6,258,373
Cost of goods sold 11,774,127 4,627,699
-------------------------
Gross profit 5,087,137 1,630,674
-------------------------
Operating expenses:
Selling expenses 2,269,803 1,142,328
General and administrative expenses 1,146,473 771,791
-------------------------
3,416,276 1,914,119
-------------------------
Operating income (loss) 1,670,861 (283,445)
Other expenses:
Other 68,000 --
Interest expense 274,523 139,893
-------------------------
342,523 139,893
Income (loss) before provision for income taxes 1,328,338 (423,338)
Provision for income taxes 505,000 --
-------------------------
Net income (loss) $ 823,338 $ (423,338)
=========================
Net income (loss) per share $ .06 $ (.05)
=========================
Weighted average number of common shares
and equivalents outstanding 16,426,033 8,750,424
=========================
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
April 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In
Shares Amount Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1997 9,633,786 $ 9,634 $11,918,655 $(3,320,378) $ 8,607,911
Issuance of common stock through
exercise of options and warrants 526,245 526 1,288,141 -- 1,288,667
Issuance of common stock in
connection with retirement plan 10,778 11 55,901 -- 55,912
Tax effect of utilization of pre-quasi
reorganization operating loss carryforwards -- -- 103,000 -- 103,000
Net income for the three months ended
April 30, 1997 -- -- -- 823,338 823,338
-------------------------------------------------------------------
Balance at April 30, 1997 10,170,809 $10,171 $13,365,697 $(2,497,040) $10,878,828
===================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30, April 30,
1997 1996
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 823,338 $ (423,338)
Items in net income (loss) not effecting cash:
Depreciation and amortization 128,998 103,718
Provision for allowances and bad debts expense 12,889 198
Tax effect of utilization of pre-quasi reorganization
net operating losses 103,000 --
Changes in operating assets and liabilities:
Accounts receivable (95,541) 420,761
Inventories (622,346) (559,332)
Deferred taxes 372,000 --
Prepaid expenses (389,723) (159,406)
Other assets (4,162) --
Due to factor (3,545,485) (520,961)
Accounts payable - trade 1,358,567 1,409,323
Accrued expenses 383,372 (293,372)
Long term liabilities (3,000) 1,312
--------------------------
Net cash used in operating activities (1,478,093) (21,097)
--------------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)
Three Months Ended
April 30, April 30,
1997 1996
--------------------------
Cash flows used in investing activities:
Capital expenditures $ (3,406) $ (50,022)
--------------------------
Net cash used in investing activities (3,406) (50,022)
--------------------------
Cash flows provided by financing activities:
Proceeds from sale of stock 1,288,667 --
--------------------------
Net cash provided by financing activities 1,288,667 --
--------------------------
Net decrease in cash and cash equivalents (192,832) (71,119)
Cash and cash equivalents, beginning of period 389,517 204,996
--------------------------
Cash and cash equivalents, end of period $ 196,685 $ 133,877
==========================
Supplemental disclosures of non-cash activities:
The Company issued 10,778 shares of common stock for the three months ended
April 30, 1997 as a matching contribution in connection with the Company's
retirement plan.
See accompanying notes to condensed consolidated financial statements.
8
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary have been included. Operating
results for the three month period ended April 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending January 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended January 31, 1997.
The condensed consolidated financial statements include the accounts of
Candie's, Inc. and its wholly owned subsidiaries, Bright Star Footwear, Inc.
("Bright Star"), Ponca, Ltd. ("Ponca"), Yulong Co., Ltd. ("Yulong"), Candies
Galleria, Inc. ("Candies Galleria") and the Company's 60% owned subsidiary
Intercontinental Trading Group, Inc. ("ITG"), (collectively, the "Company"). All
significant intercompany transactions and balances have been eliminated from the
consolidated financial statements for all periods presented.
The Company designs, markets, imports and distributes a variety of
moderately-priced, casual and fashion footwear for women and girls under the
trademarks CANDIE'S(R), BONGO(R), ASPEN(R) and certain others. The Company's
product line also includes a wide variety of men's and boys' workboots, hiking
shoes and leisure shoes designed, marketed and distributed by Bright Star. The
Company sells to retailers throughout the United States and several foreign
countries.
2. Inventory
Inventories, which consist entirely of finished goods, are valued at the lower
of cost or market. Cost is determined by the first-in, first-out ("FIFO")
method.
3. Subsequent Event
On April 23, 1997, the Company called for redemption on May 27, 1997, which was
subsequently extended to May 30, 1997 (the "Redemption Date"), its outstanding
Class B redeemable warrants ("Warrants") at a redemption price per Warrant of
$0.25. Each Warrant entitled the holder thereof to purchase one share of Common
Stock at an exercise price of $4.00 until 5:00 p.m., Eastern Standard time, on
the Redemption Date, at which time the right to exercise such Warrant
terminated. On April 23, 1997, Warrants to purchase an aggregate of 1,467,200
shares of Common Stock were outstanding. Subsequent to April 30, 1997, 1,423,300
warrants have been exercised and $5,693,200 in gross proceeds received. The
Company intends to apply the net proceeds of exercises, first to repay
short-term borrowings and the balance, if any, to finance capital expenditures
and other working capital requirements.
9
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Continued)
4. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", which is
effective for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company accordingly plans to adopt
SFAS No. 128 in its January 31, 1998 annual financial statements. The Company
does not anticipate that SFAS No. 128 would have had a material effect on the
earnings per share presented, if it had been adopted in the quarter ended April
30, 1997.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net revenues increased $10,602,891 (169%) for the three months ended April 30,
1997 compared with the three months ended April 30, 1996. The increase was
primarily due to the Company's sales and marketing efforts, including the
Company's decision to emphasize sales of contemporary and casual footwear. In
addition to the growth achieved by the Candie's (R) brand in its core market,
the Company's first shipments of its children's footwear line sold well on a
national level. Strong sales increases continued in the BONGO (R) product line.
The Company is a licensee of the BONGO trademark.
Gross margins were 30% in 1997 compared with 26% in 1996. The increase in gross
margin was attributable to lower levels of closeout sales and promotional
activity, such as markdowns and advertising allowances. In addition gross margin
was higher in 1997 due to more favorable prices negotiated with suppliers and
increased selling prices.
Selling expenses were $2,269,803 in 1997 compared to $1,142,328 in 1996, an
increase of 99% primarily due to increases in the amount of salesmen's
commissions on increased footwear sales, increases in customer service salaries
from personnel additions and increases in advertising and marketing costs.
General and administrative expenses were $1,146,473 in 1997 compared with
$771,791 in 1996, an increase of 49%, primarily due to an increase in general
and administrative salaries from hiring new employees and increases in general
expenses directly attributable to the increase in sales during the 1997 period.
Interest expense of $274,523 increased in 1997 from the $139,893 reported in the
1996 period due to increased average borrowings.
As a result of the foregoing, the Company's net income for the three months
ended April 30, 1997 increased to $823,338 or $.06 per share from a loss of
$423,338 or ($.05) per share for the corresponding period ended April 30, 1996.
Liquidity and Capital Resources
The Company relies primarily upon cash flow from operations and borrowings under
its credit facility with its factor to finance its operations. For the three
months ended April 30, 1997, net cash used in operating activities was
$1,534,006 as compared with $21,097 during the same period in the prior year.
At April 30, 1997, the Company had working capital of $5,435,116 versus working
capital of $3,045,769 at January 31, 1997. The increase is primarily due to cash
generated from increased earnings and from the issuance of common stock.
During May and June 1997, the Company received gross proceeds totalling
$5,693,200, in connection with the redemption of its Class B redeemable warrants
as discussed in footnote 3 of the Notes to the Condensed Consolidated Financial
Statements.
Management anticipates it will be able to satisfy its ongoing cash requirements
for the foreseeable future, primarily with cash flow from operations, borrowings
under its credit facility and if necessary, funds generated from the sale of
securities.
11
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
During the fiscal quarter ended April 30, 1997 the Company
issued 10,778 shares of its common stock as a matching
contribution in connection with the Company's 401-K retirement
plan. In addition, the Company issued five-year options to its
employees to purchase an aggregate of 105,000 shares of its
common stock at exercise prices ranging between $5.06 and
$5.13. The foregoing shares and options were acquired by
the holders for investment in private transactions exempt
from registration by sections 2(3) or 4(2) of the Securities
Act of 1933.
Items 3-5 None
Item 6. Exhibits and Reports on Form 8K
A. Exhibits
Exhibit 11 Computations of Earnings Per Share
Exhibit 27 Financial Data Schedule (SEC use only)
B. Reports on Form 8K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S, INC.
By: /s/ Neil Cole
------------------------
Neil Cole, Chief
Executive Officer,
(Principal Executive
Officer)
By: /s/ Gary Klein
------------------------
Gary Klein, Vice
President of Finance
(Principal Accounting
and Financial Officer)
Dated: June 16, 1997
13
EXHIBIT 11
CANDIE'S, INC. AND SUBSIDIARIES
COMPUTATIONS OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED
(MODIFIED TREASURY STOCK METHOD)
April 30,
(1)
1997 1996
----- ----
AVERAGE SHARES OUTSTANDING 9,974,634 8,750,424
NET EFFECT OF DILUTIVE STOCK
OPTIONS-BASED ON THE MODIFIED
TREASURY STOCK METHOD USING
AVERAGE MARKET PRICE WHICH IS
GREATER THAN QUARTER-END
MARKET PRICE 6,451,399 --
----------- -----------
TOTAL COMMON STOCK AND EQUIVALENT
SHARES 16,426,033 8,750,424
=========== ===========
NET INCOME (LOSS) $ 823,338 $ (423,338)
ADD:
INCOME EARNED, NET OF
FEDERAL INCOME TAX EFFECT 198,955 --
----------- -----------
TOTAL EPS INCOME (LOSS) $ 1,022,293 $ (423,338)
=========== ===========
PER SHARE AMOUNT (PRIMARY AND FULLY DILUTED) $ .06 $ (.05)
=========== ===========
(1) NO ADDITIONAL INCOME(EARNINGS FROM INVESTING THE EXCESS PROCEEDS UPON THE
EXERCISE OF COMMON STOCK EQUIVALENTS) NOR COMMON STOCK EQUIVALENTS WERE INCLUDED
IN THE CALCULATION OF NET LOSS PER SHARE FOR 1996 BECAUSE THE RESULTS WOULD HAVE
BEEN ANTIDILUTIVE.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FORM 10-Q AT APRIL 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FINANCIAL STATEMENTS INCLUDED IN
SUCH FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 196,685
<SECURITIES> 0
<RECEIVABLES> 1,411,466
<ALLOWANCES> 0
<INVENTORY> 5,873,437
<CURRENT-ASSETS> 12,534,062
<PP&E> 1,107,967
<DEPRECIATION> 764,031
<TOTAL-ASSETS> 18,082,774
<CURRENT-LIABILITIES> 7,098,946
<BONDS> 0
0
0
<COMMON> 10,171
<OTHER-SE> 10,868,657
<TOTAL-LIABILITY-AND-EQUITY> 18,082,774
<SALES> 16,861,264
<TOTAL-REVENUES> 16,861,264
<CGS> 11,774,127
<TOTAL-COSTS> 11,774,127
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274,523
<INCOME-PRETAX> 1,328,338
<INCOME-TAX> 505,000
<INCOME-CONTINUING> 823,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 823,338
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
